Ethics Abroad: A Shanghai Surprise

A primer on the possible pitfalls faced by attorneys when they practice law
in another country

Langford

Nickels

By CAROL LANGFORD and NATHANIEL NICOLL

Much to his surprise, Tom awoke in a jail cell in China. That the cell was
in China was not particularly unnerving; he had been practicing law there for
awhile. It was the matter of the cell, or more specifically his being in it
that troubled him. Memories of a drunken stupor and a few police assailed him
through the haze of a fierce hangover. The alcohol had been such that he recalled
little of his booking and none of what was said of his crimes.

Tom realized that he was not quite sure why he was where he was. While speaking
passable Chinese, how to call a guard was not a particular etiquette Tom was
acquainted with. Luck- ily he was saved the trouble of experimenting as two
figures arrived outside his cell, one a guard, the other John, a partner at
Tom's firm. Before Tom could utter a word, John passed him a stack of books
and papers. "These should help shine some light on the national security
issue as well as the ethics violation." With that said, John turned and
left, quickly ushered out of Tom's new, disagreeable world.

After reading the paper from John Tom realized he would not be getting out
of jail today. So, he thought, in addition to endangering the national security
of China, I had managed to violate a rule of legal ethics. Unsure as to when
anyone was going to bring him up to speed on the exact details of his crimes,
Tom began his first bout of serious research in years.

Whose law had he violated? Tom took a familiar-looking text in hand, a used,
but surprisingly recent edition of the California Rules of Profession-al Conduct.
According to Rule 1-100 (D), because Tom was licensed to practice law in California,
the Calif-ornia rules governed Tom's conduct both in and outside of the state,
except that when he lawfully practiced outside the state he might be specifically
required by the jurisdiction in which he were practicing to follow rules of
conduct different from California's rules.

Flipping through books and hastily copied articles, he quickly came across
an anemic-looking document titled "Law of the People's Republic of China
on Lawyers." Before even attempting to peruse the document, a thought struck
him: Am I considered a lawyer in China?

Recalling his days of lawyering in Japan before he was deported for importing
rice without a license, Tom remembered how under Japanese law, though he was
a foreign lawyer working for a foreign law firm, legally he was not considered
a lawyer. Nonetheless, the Japan Federation of Bar Associations' (JFBA) Code
of Ethics for Practicing Attorneys governed his actions. As he was certainly
within China's jurisdiction, Tom needed to find out his status as a lawyer under
the law, something he had not done prior to embarking on a legal career overseas.

Tom knew there were American firms in China. Big ones. Reputable ones. If American
firms were here, then American lawyers were here. With this simple logic in
hand, Tom cracked the books and made quick work of his status under the law.
A cursory look through China's regulations on the management of representative
offices set up by foreign law firms in China settled the issue.

Limited services in China

Article 3 of the regulations stated it clearly enough: In addition to not being
allowed to endanger the national security of China, when engaging in the provision
of legal services, a resident representative office and its representatives
had to abide by the laws, regulations and rules of China, including the professional
ethics and the Code of Practice of Chinese Law-yers. While the services Tom
could provide as a lawyer were limited, when in China, at least for ethical
purposes, he was to act as a Chinese lawyer.

Tom began to think. Perhaps it had been the commercial. Maybe it had come on
a little strong, but Tom had wanted to get on the map. Taking in his increasingly
less surreal surrounding, Tom appeared to have done that. Though the ad had
spanned a mere 30 seconds of low budget airtime, Tom was uncertain as to which
particular seconds accounted for his incarceration. Was it the shot of him standing
in front of a tank claiming to be a "lawyer who will represent your interests
. . . against anyone?"

Perhaps it was the clip of Tom standing in Tiananmen Square telling people
to "rise up and demand more . . ." Of your lawyer, Tom belatedly added.
Viewed through the sober light of a prison cell, Tom began to understand how
the government of the People's Republic of China might have reasonably construed
his ad to be a little disruptive . . . but that did not explain the ethics violation.

Out of habit, Tom first looked for a California rule on point and came across
1-400. While the ad might have been in poor taste and embarrassing to some people,
it did not contain any untrue statements, present matters or omit facts in a
false, deceptive or misleading way, and it certainly did not hide the fact that
is was an ad.

Nor was it presented in any manner involving intrusion, coercion or any such
repugnant act. It even had a "this is a dramatization" subtitle during
the part where a bumbling extra extolled the virtues of Tom's service that would
have satisfied §6157.2 of the State Bar Act. As far as Califor-nia law
was concerned, Tom had followed the law ad litteram. While searching for the
relevant section of China's Law on Lawyers, Tom could not help but wonder if
the commercial would have failed article 10 of the JFBA's Code of Ethics for
Prac-ticing Attorneys. According to article 10, advertising in a manner which
would degrade one's dignity as an attorney was forbidden.

Certainly few things were more undignified than bad actors pretending to be
grateful clients espousing the wonders of a certain firm while the words "this
is a dramatization" flashed away, beseeching the viewer to change the channel.
As for China's Law on Lawyers, article 24 was the only relevant requirement,
and it only forbid the solicitation of clients by unfair means such as slandering
other lawyers or paying "middle man's fees." Perhaps the commercial
was ethical by Chinese and American standards.

Tom considered. What were lawyers always getting busted for back in the states?

Trust fund violations

Perhaps it was that bane of all numerically challenged lawyers, failure to
properly manage a client's trust fund. Tom, being intimately familiar with rule
4-100, did not need to reference the California Code of Professional Conduct.
Preserving the Identity of Funds and Property of a Client was something he had
failed to do on an occasion or two. Failing to segregate funds received or held
for the benefit of a client from his own cash? Commingling a client's advances
for costs and expenses with his own pocket change? I gave that up with cigarettes,
he thought.

Just as well, China's Law on Lawyers made no mention of trust funds. Neither
did Japan's, he thought, but fees had been another matter entirely. Article
36 of the JFBA's Code of Ethics for Practicing Attorneys demand of an attorney
that he or she strive to state clearly to a client the amount of the fee or
the calculation method to be employed. Article 37 follows up with the declaration
that an attorney shall determine the proper and reasonable fee considering the
nature of the case.

This appeared to reflect some of the same sentiment found in the American Bar
Association's Model Rule 1.5 which called for fees to not be unreasonable. While
this shared some common spirit with rule 4-200 of the California Rules of Profession-al
Conduct, the latter only requires that the fee not be unconscionable.

4-200 listed a myriad of factors for guidance; 11 stars to navigate by if one
were to achieve a safe harbor. On this particular issue, the JFBA's code was
not to be outdone.

The JFBA had a lot to say about fees. So much, in fact, that an article or
two, no matter how well-endowed with subparts and indentations, would not have
sufficed. Fees turned out to be something the JFBA could not take too seriously,
a stance requiring nothing less than an entirely distinct code: Regulations
Concerning the Standards for Attorney's Fees, etc.

Not only did these articles define the types of fees and how they should be
rationalized, the JFBA fees code nailed down the exact price variance that would
be allowed for numerous services. Not a lot was left to doubt.

Article 12 dictated that a "legal opinion in writing" required a
fee of between 100,000 and 300,000 yen ($811 to $2,433), allowing for increases
for matters of great complexity or in the event of special circumstances. Article
19, governing contract negotiations, laid out exact percentiles, depending on
the value of the contract, that could be charged, allowing for a variation of
30 percent, depending on the content of the matter.

The articles were both copious and detailed, many with specific ceilings and
floors. It turned out that the regulation on lawyers' fees was significantly
more detailed than the JFBA's Code of Ethics and longer by a good number of
pages. Apparently the lawyers of Japan did not have a Japanese equivalent of
the standard set in Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S. Ct.
2004 (1975), which put fee schedules in violation of the antitrust laws of the
USA.

China's take on lawyer's fees, while shedding little light on Tom's predicament,
proved to be interesting in its own right. According to article 35 of China's
Law on Lawyers, a lawyer, among other things, could not charge fees from the
client privately. All fees were to be paid to the law firm for which one worked.
That summed up what China's Law on Law- yers had to say about attorneys' fees.

Much like Japan, however, the issue of fees was reserved for separate documents
which dictated the ranges of fees for various acts and percentiles receivable
of disputed amounts. Apparently these regulations were only followed in the
more rural of settings.

Consequently, local governments were attempting to reign in lawyers by capping
certain fees. Shanghai placed an upper limit of approximately $360 on hourly
rates in addition to other fee standards in guidelines issued by the Shanghai
Municipal Judicial Bureau and the Price Bureau.

Whether such guidelines were enforceable was debated as some argued such regulation
was the purview of the state. Nonetheless, Shanghai was not alone in its attempt
to set fee limits for attorneys. A price bureau in Fujian province had announced
in its Provisional Regula-tions for the Administration of Law-yers' Service
Charges an expansive fee schedule and fee calculation system for numerous services,
including a cap of 20 percent of the total worth of the amount involved. Apparently
there was no Goldfarb in China either.

Tom did not recall charging any fees, in manner or amount that would have put
him on the wrong side of an ethical standard or fee regulation. Perhaps it was
my failure to charge a fee that got an ethical violation tacked onto my rap
sheet, Tom realized.

Tom thought about what else might have gotten him in trouble. The California
Rules of Professional Conduct were pretty clear on the sex with client issue:
No requiring or demanding sex-for-representation swaps, no coercing sex from
a client and no sex with a client if it might render one's services incompetent.
Of course, these conditions applied only if one failed to marry or at least
have sex with a client before he or she became a client. Tom had met Ms. Xie
when she approached him with questions concerning the incorporation process
in the U.S. Tom was delighted to be of assistance.

Appearing magnanimous, he waived his hand and his fee in one motion saying,
"I'm new in Shanghai and I'm sure you know more about the restaurant scene
than myself. Could you recommend one? Perhaps you could introduce me to one
. . . we could forget about today's fee . . . make it a cultural trade of sorts."
Ms. Xie was happy to oblige. Dinner between attorney and client begat dinner
between consenting adults.

Unsure how he fared under the California rule, Tom sought guidance in China's
Law on Lawyers and found none. Not a single, even slightly prurient word. He
figured it really did not matter so long as your representation was competent.

At least that was what he surmised of Japan's Code of Ethics when he failed
to turn up a section governing sex with a client one August morning while awaiting
extradition. To determine the general requirements for competency, Tom turned
to three articles in Japan's Code of Ethics for Practicing Attorneys: Article
4 requires an attorney to be faithful and perform his or her duties fairly and
in good faith; article 5 requires an attorney to value honor, maintain credibility,
and at the same time endeavor to refine himself or herself and enhance the level
of his or her culture; and article 6 requires an attorney to be familiar with
laws and rules of legal practice.

While not specifically discussing sex, these articles appeared to require an
attorney to act in a responsible and professional fashion whether he or she
was involved in sexual relations with a client or not.

Just in case, Tom stole a look into the criminal law of the People's Republic
of China. Tom had been more cad than gentleman during his pre-incarceration
time in China. There had been quite a few occasions upon which he had recommended
waiving the fee in lieu of a dinner here, a drink there, a hug, another drink
. . . another fee waived. He never really wondered if they knew the dinner and
drinks were strictly optional, if they knew they could always insist on paying
a fee instead of having the pleasure of his company. Tom found little sanctuary
in the words of article 236, stating a sentence of not less than 10 years and
as much as death accompanied a conviction of ". . . sexual relations with
several girls . . ." It sounded like a specu- lative and unlikely law to
be enforced, but it occurred to Tom that knowledge of a country's ethics beyond
those statutorily required of a certain pro- fession would be a good thing to
know.

Enough, Tom thought, putting a mental foot down, what is the worst case scenario?
For a commercial that potentially attempted to subvert the power of the people's
democratic dictatorship and overthrow the socialist system, it was probably
pretty bad. Of course, according to article 13 of the Criminal Law of the People's
Republic of China, if the circumstances were clearly minor and the harm not
great, his act would not be deemed a crime. Tom took a little solace in this,
certain that someone would see the silly idiocy of his ad, if not the weak attempt
at humor. But what of the supposed ethical violation?

What spectrum of potential discipline awaits me, he wondered even as he began
to read article 44 of China's Law on Lawyers. Lesser offenses such as representing
both parties involved in a case or of divulging commercial secrets of the private
affairs of a concerned party carried but a disciplinary warning. If the case
was serious, a cessation of practice for no less than three months but no more
than one year could be imposed. Any illegal proceeds would be disgorged as well.
Article 45 upped the ante.

Acts such as divulging state secrets, bribing a judge and providing false evidence
would result in the revocation of one's practice certificate, as well as any
applicable criminal sanctions. Conviction of an intentional crime was another
way to lose one's license. Adding article 13 (1) of the regulations on the management
of representative offices to the mix made losing one's license in his or her
own country a reason for revoking a foreign lawyer's license to practice law
in China.

All things considered, Tom did not recall bribing any judges lately and could
only assume that he was in for a stern warning, or perhaps a temporary suspension.
Unless the matter of the date with Ms. Xie stuck .....

Nathaniel (Nate) Nicoll specializes in international business matters and corporate
ethics at the Law Office of Carol M. Langford. Langford specializes in providing
advice to lawyers in ethics and legal malpractice matters.

Certification

This activity has been approved for Minimum Continuing Legal Education credit
by the State Bar of California in the amount of one hour in legal ethics.

The State Bar of California certifies that this activity conforms to the standards
for approved education activities prescribed by the rules and regulations of
the State Bar of California governing minimum continuing legal education.

SELF-ASSESSEMENT TEST

Answer the following questions after reading the MCLE article on ethical pitfalls
of practicing law abroad. Use the answer
form provided to send the test, along
with a $20 processing fee, to the State Bar. If you do not receive your certificate
within four weeks, call 415-538-2504.

1. According to Rule 1-200 of the California Rules of Professional Conduct,
the California rules may govern conduct both in and outside of the state.

2. The title of the regulations governing lawyer conduct in China is Law of
the People's Republic of China on Lawyers.

4. Article 3 of China's regulations on the management of representa-tive offices
set up by foreign law firms in China requires the representatives of foreign
law firms in China to abide by the professional ethics and Code of Practice
of Chinese lawyers.

5. Rule 1-400 of the California Rules of Professional Conduct prohibits
the unauthorized practice of law.

6. According to §6157.2 of the State Bar Act, a dramatization must include
a disclaimer.

7. Article 10 of the JFBA's Code of Ethics for Practicing Attorneys prohibits
advertising in a manner which would degrade one's dignity as an attorney.

8. Article 24 of Law of the People's Republic of China on Lawyers permits
solicitation of clients by such means as the slandering of other lawyers.

9. Rule 4-100 of the California Rules of Professional Conduct prohibits the
commingling of a client's advances for costs with an attorney's personal funds
but permits the commingling of a client's advances for expenses with an attorney's
personal funds.